In a class action brought by tenants claiming damages for luxury deregulation during a time that the building was receiving J-51 tax benefits, the Appellate Division rejected arguments alleging that the deregulation was a fraudulent scheme, or that the rents should be recalculated using a punitive default formula. In Woodson v Convent 1 LLC, handled by our firm, the Appellate Division reaffirmed the prior holdings by the Court of Appeals in Regina and Casey concerning the high evidentiary standard that is necessary in order to prove that an act of deregulation was fraudulent, and that absent fraud, there is no basis for applying a default formula in order to re-set the legal rents. The Court made clear that while in some instances, there may have been overcharges, or the omission of all the required lease forms, and even delays in re-registering apartments as rent stabilized, due to the mistaken deregulation; nonetheless, such acts do not constitute per se fraud. In addition, the Court noted that with respect to setting new stabilized rents in those circumstances, the general rule is to look at the rent charged on the base date (in this case, four years before the complaint was filed because the claims arose before the Housing Stability Tenant Protection Act of 2019 was enacted), and add the legal increases that accrued thereafter.
This decision addresses many issues that continue to arise in buildings that had deregulated units and received J-51 tax benefits. It provides guidance on the evidentiary criteria for fraud claims, that can apply more broadly to many landlord-tenant disputes. It is an important decision placing significant limits on such claims, as well as on the use of the default formula to set legal rents.
If you wish to discuss how any aspect of this decision may apply to your case(s), contact your BBG attorney of record.